Czech Republic

It’s good for you

AS THE year's first blossoms appeared in Prague, the Czech government celebrated the occasion with a spring-clean. On April 16th the prime minister, Vaclav Klaus, produced a mini-budget designed to get a grip on the economy. There will be a cut in state spending, and a limit on public-sector pay rises; state-owned firms will be told to employ fewer people, and importers will have to put down an import-discouraging deposit. All this, the government hopes, will impose a bit of order.

The need for this has come as a shock to a country that has in recent years grown accustomed to good economic news. After all, the Czechs' national income is still rising, though not as fast as in 1995 and 1996, inflation is falling and unemployment is a mere 4.1%. The trouble is that Czechs are paying themselves far more than they deserve, reckons Josef Tosovsky, the governor of the central bank. Industrial wages rose by 16.2% in the year to February, while industrial output was falling by 3.5%.

The government has failed to stop this. Earlier this year it crumpled in the face of a rail strike and awarded railway workers a 17% pay rise, more than double the annual inflation rate. Now teachers want more money; on April 12th about 10,000 of them demonstrated to that end in central Prague. Doctors, too, are restless, because of a financial crisis in the health sector that threatens to put some hospitals into bankruptcy.

This unruly state of affairs is causing embarrassment to a government which has long boasted that the country's economic transformation is complete. Indeed, Mr Klaus's three-party coalition had until recently conducted the march to a free-market system with panache. But ever since last summer's election, when the government lost its parliamentary majority, Mr Klaus and his team have become so distracted by intra-coalition manoeuvrings that they have allowed the economy to drift.

Decisions on taxes, price liberalisation and privatisation have been postponed. Industry, much of it run by state-owned banks, has become less competitive. The trade deficit has ballooned to $6 billion. To cap it all, lax financial regulations have allowed fraudsters to rob an estimated 750,000 people, 7% of the population, of their contributions to investment funds. The governing coalition, in the words of Jiri Pehe, chief political analyst at Radio Free Europe in Prague, is “disjointed, tired, devoid of new ideas”. That gets it distrusted.

Still, the coalition looks like surviving a bit longer. Its parliamentary position was strengthened when the opposition Social Democrats recently expelled two members of parliament, one of whom joined Mr Klaus's Civic Democratic Party. That, for the moment, has blocked the calculations of Josef Lux, a deputy prime minister and boss of the Christian Democrats, who had toyed with the idea of throwing his party's lot in with the opposition Social Democrats. The Social Democrats,though their leader, Milos Zeman, has been accused of “mindless confrontationalism”, are the natural beneficiaries of this week's painful economic measures. The opinion polls say they are now the country's most popular party.

They may have to wait, though. A fresh face on the scene is Michal Zantovsky, a former ambassador to Washington who last month was elected leader of the third coalition party, the Civic Democratic Alliance. This has intriguing implications. The Alliance is a party of liberal free-marketeers that is strong on ideas, if not very united. Mr Zantovsky has pushed aside those of its members who dislike Mr Klaus. This may hasten a merger with Mr Klaus's lot. It has also got Mr Lux salivating at the prospect of recruiting to his Christian Democrats those in the Alliance who cannot abide the thought of hopping into bed with Mr Klaus. But it offers Mr Klaus the prospect of reinforcement—and a means of holding the opposition at bay.

All this is mere detail, however, compared with what happens in the economy. If this week's measures get things moving and Czech voters do not protest too much about the pain, Mr Klaus can breathe again. If not, turn your eyes towards the explosive Mr Zeman and his Social Democrats.